HSA and adult child

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scorvitz
Posts: 1
Joined: Thu Oct 12, 2017 12:52 pm

HSA and adult child

Post by scorvitz » Thu Oct 12, 2017 1:11 pm

I am trying to determine how to handle my daughters medical expenses. Here are the facts:

• I have a HDHP with family coverage. (covers me, my wife and my daughter)
• I have a HSA and contribute the max of $6,750 plus the $1,000 extra because I am over 55.
• My daughter is 22, is not a FT student, single, lives at home, I provide most of her support and she earned over $5k.
• She has no other healthcare coverage

Since she earned over $5k it is my understanding that I will not be able to claim her as a dependent for tax return purposes. In reading the Qualified Medical Expense Rules for HSA (publication 969) the basic rule states that if your child is not a dependent then you can not use your HSA funds to reimburse her Medical Expenses. But, if you read further there seems to be an exception to this rule as highlighted below:

Qualified medical expenses.
Qualified medical expenses are those expenses that generally would qualify for the medical and dental expenses deduction. These are explained in Pub. 502, Medical and Dental Expenses.
Also, non-prescription medicines (other than insulin) aren’t considered qualified medical expenses for HSA purposes. A medicine or drug will be a qualified medical expense for HSA purposes only if the medicine or drug:
1. Requires a prescription,
2. Is available without a prescription (an over-the-counter medicine or drug) and you get a prescription for it, or
3. Is insulin.
For HSA purposes, expenses incurred before you establish your HSA aren’t qualified medical expenses. State law determines when an HSA is established. An HSA that is funded by amounts rolled over from an Archer MSA or another HSA is established on the date the prior account was established.
If, under the last-month rule, you are considered to be an eligible individual for the entire year for determining the contribution amount, only those expenses incurred after you actually establish your HSA are qualified medical expenses.
Qualified medical expenses are those incurred by the following persons.
1. You and your spouse.
2. All dependents you claim on your tax return.
3. Any person you could have claimed as a dependent on your return except that:
a. The person filed a joint return,
b. The person had gross income of $4,050 or more, or
c. You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2016 return.

Based on the above, it is my understanding that I can apply her medical expenses against my HSA. I am looking for an ‘expert’ to confirm.

In further research I came across the following: Apparently an adult child who is not a dependent can open their own HSA (when covered by parents HDHP) and contribute the family max amount and not just the individual amount. I know it sounds crazy but I read this in multiple places:

http://www.hsaedge.com/2016/08/13/your- ... r-own-hsa/

So in my instance, can I apply my daughters medical expense against my HSA and still open up her own HSA as per the above?

Spirit Rider
Posts: 6210
Joined: Fri Mar 02, 2007 2:39 pm

Re: HSA and adult child

Post by Spirit Rider » Thu Oct 12, 2017 5:28 pm

The basic part you are missing is that your daughter can not be claimed as a dependent. See Form 1040 Instructions for Line 6c. The tests are logical ands, any single failure, fails the test:
  1. She is not a qualifying child under step 1, because she is not under 19, is not a full time student and is not disabled. Your degree of support becomes irrelevant.
  2. She is not a qualifying relative under step 4, because her gross income > $4,050. Your degree of support becomes irrelevant.

Qualified medical expenses are those incurred by the following persons.
  1. You and your spouse.
  2. All dependents you claim on your tax return
  3. Any person you could have claimed as a dependent on your return except that:
    1. The person filed a joint return,
    2. The person had gross income of $4,050 or more, or
    3. You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2016
She could not have been claimed as a dependent on your return. Therefore, her medical expenses are not qualified medical expenses for your HSA.


To be an eligible individual and qualify for an HSA, you must meet the following requirements.
  • You are covered under a high deductible health plan (HDHP), described later, on the first day of the month.
  • You have no other health coverage except what is permitted under Other health coverage, later.
  • You aren’t enrolled in Medicare.
  • You can’t be claimed as a dependent on someone else's 2016 tax return.
Your daughter is an eligible individual and qualifies for an HSA. She is covered by a family HDHP plan and can make contributions up to the full family limit. She is not subject to the rules for married people so her contributions do not interfere with you/your spouses limit.

Note: Family members or anyone for that matter can make contributions to someones HSA. The HSA owner is the one who gets the tax deduction. So it may not be that valuable if they do not have much of an AGI. They may be better off with Roth IRA contributions, especially if they can get the saver's credit.


I don't believe there are any circumstances where someone could qualify for both.

pshonore
Posts: 5611
Joined: Sun Jun 28, 2009 2:21 pm

Re: HSA and adult child

Post by pshonore » Thu Oct 12, 2017 6:53 pm

Perhaps I have a reading comprehension problem but it seems to me he could have claimed her as a qualifying relative EXCEPT she made too much money. Had she not had the income or if it was less than $4050, he could have claimed her. Does she not meet the other tests? Of course if he claims her medical expenses then she cannot open an HSA. (Frankly it seems just a little bizarre that she could). Whats the reasoning behind that?

Spirit Rider
Posts: 6210
Joined: Fri Mar 02, 2007 2:39 pm

Re: HSA and adult child

Post by Spirit Rider » Thu Oct 12, 2017 8:00 pm

pshonore wrote:
Thu Oct 12, 2017 6:53 pm
Perhaps I have a reading comprehension problem but it seems to me he could have claimed her as a qualifying relative EXCEPT she made too much money. Had she not had the income or if it was less than $4050, he could have claimed her. Does she not meet the other tests? Of course if he claims her medical expenses then she cannot open an HSA. (Frankly it seems just a little bizarre that she could). Whats the reasoning behind that?
That is exactly what I said. She made too much money. Once you fail the income test, the other tests are irrelevant.
Spirit Rider wrote:
Thu Oct 12, 2017 5:28 pm
2. She is not a qualifying relative under step 4, because her gross income > $4,050. Your degree of support becomes irrelevant.
There is no reasoning behind it. This is one of those things that could legitimately be considered a loophole.

When HSAs were first enacted, There was no difference between a dependent under tax law and dependent coverage for health insurance coverage. So a non-dependent could never have health insurance coverage to be an HSA eligible individual. Prior to Obamacare, dependent health insurance coverage was only available under federal tax law for dependents. Some states enacted laws to require insurance companies to provide expanded coverage to those < 26 even if not full-time college students, but not under federal law.

Obamacare changed federal law to provide that health insurance coverage should be provided for expanded coverage to those < 26 even if not full-time college students. So that made non-dependents eligible for dependent health insurance. That is those who are not full-time college students 19 - 25. Nobody writing the law noticed or cared that individuals covered by HDHP plans who are not dependents are by default HSA eligible individuals. The other quirk that allows them their own full family plan limit contributions is that since nobody envisioned this only married people must share one family plan contribution space.

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